The Home Depot Inc. is a success story of three men creating a new business that redefined the industry. By 2000, the company had reached $40 billion in revenues faster than any retailerhadin the US history. The founders then left the management of the company in the hands of Robert Nardelli, who, it was hoped, would continue the company's success.
Founded in Atlanta, Georgia in 1978, Home Depot is the world's largest home improvement retailer and the second largest retailer (after Wal-Mart) in the United States based on net sales for the 2005 fiscal year which ended on January 29, 2006. The Home Depot stores sells a wide assortment of building materials, home improvement and lawn and garden products, and provides a number of services such as design and installation. In addition to the Home Depot stores, the company has a store format that sells products and services primarily for home decorating and remodeling projects called EXPO Design Center and two store formats focused on professional customers called Home Depot Supply and Home Depot Landscaping Supply.
As of August 29, 2006, the company operated 1,832 Home Depot stores in 50 states and in the District of Columbia, Puerto Rico and the Virgin Islands, plus 143 stores in Canada and 57 in Mexico. It also operated 34 EXPO Design Center locations in the US, 900 Home Depot Supply locations (including 11 Contractor's Warehouse locations) in 44 states and in Canada, and 11 Home Depot Landscape Supply stores in the Atlanta and Dallas-Fort Worth areas. The company also had two Home Depot Floor Stores in Texas and Florida that primarily sold flooring products.
The case begins with Robert Nardelli summarizing the company's performance during the five year period (2001 – 2005) since he joined Home Depot as its Chief Executive Officer. On most measures, the company is clearly an outstanding success. Sales and earnings per share have doubled since 2000. The number of stores has increased by more than 900 and the operating margin has increased from 9.2% to 11.5%. The company has expanded its installation services business. Growing with acquisitions, the company has successfully increased its sales in the professional builder market.
[...] and services primarily for home decorating and remodeling projects called EXPO Design Center and two store formats focused on professional customers called Home Depot Supply and The Home Depot Landscaping Supply. As of August the company operated 1,832 Home Depot stores in all 50 states and the District of Columbia, Puerto Rico, and the Virgin Islands, plus 143 stores in Canada and 57 in Mexico. It also operated 34 EXPO Design Center locations in the U.S Home Depot Supply locations (including 11 Contractor's Warehouse locations) in 44 states and Canada, and eleven Home Depot Landscape Supply stores in the Atlanta and Dallas- Fort Worth areas. [...]
[...] Invite back past full-time employees to participate in a “return to the future.” EFAS, IFAS AND SFAS EXHIBITS 1 Exhibit 1 EFAS (External Factor Analysis Summary) External Strategic Factors Weight Rating Weighted Comments Score Opportunities market acquisitions income increasing value available installation technology marketing & increased efficiencies Threats do-it-yourself home improvement competition fast 2 Exhibit 2 IFAS (Internal Factor Analysis Summary) Internal Strategic Factors Weight Rating Weighted Comments Score Strengths suppliers results professional builders high turnover Weaknesses oriented & shoot from the hip retail stores Shareholder unrest 3 Exhibit SFAS (Strategic Factor Analysis Summary) Duration Key Strategic Weight Rating Weighte Comments Factors d Score S I L builder market acquisitions performance mixed concepts/Home Depot market Supply competency leadership technology markets potential competition relationships Competency risk 4 FINANCIAL ANALYSIS A. [...]
[...] c. Heavy use of sponsorships, e.g., Olympics. d. Increasing emphasis on installation services. e. Strong growth in Internet & catalog channels. f. Customer satisfaction drops to last place among major U.S. retailers. g. New programs instituted to rebuild retail store customer service Finance: a. Home Depot financially solid, but signals were mixed. b. Long-term debt to equity ratio in 2006 - up from in 2005. Debt boosts leverage & EPS. c. Operating margin at in 2005 up from in 2000. [...]
[...] Strategic Audit 1 Current Mission Not stated. Implied: Provide highest quality products & services at lowest price to home improvement do-it-yourself and do-it-for-me customers, and to professional builders Current Objectives (for 2010) Compounded annual sales growth of 9-12 percent Compounded earnings per share growth of 10-14 percent 400-500 new store openings adding 40-55 million new square feet Operating margin increases 50-100 basis points Cumulative operating cash flow of $50 billion Cumulative capital expenditures of $17-20 billion Grow Home Depot Supply sales to $23-27 billion 3 Current Strategies Enhance the core, extend the business, expand the market: Horizontal growth into new locations & products and concentric diversification into professional market A clustering location strategy to reduce entry opportunities for competitors. [...]
[...] d. Annual EPS growth of 20%. e. Sales doubled since 2000. f. Stock price declined 30% since 2000. g. Record high net earnings in 2005. h. Same-store sales growth declined from 10% in 1999 to in 2004 and in 2005. i. Average ticket up, but sales per square foot down since Research and Development: a. New Innovation Center enables better product quality & store design. b. Alliances with suppliers allows for better product development and new features Operations: Same-store sales growth declined from 10% in 1999 to in 2004 and in 2005. [...]
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